the audit

Memoirs of a Markets Reporter

Readers demand an explanation for why markets go up and down. But sometimes, nobody really knows.
October 3, 2011

When reading a typical stock-market story, one that says something like, “Futures Gain Ahead of Obama Jobs Plan,” did you ever think to yourself: “How do we really know the market move had anything to do with the president’s jobs plan? Says who?”

Says me.

I’m a markets reporter. It’s what I do.

I’ve been covering the markets beat for since June, after having been entrenched in the narrow world of M&A news. I wanted a beat with broader appeal. And sure enough, less than three months after the switch, page-views on my stories were soaring. My new-found popularity wasn’t because I had suddenly became a brilliant writer. It was because a volatile turn in the markets simply begged for an explanation, sending thousands of extra readers my way.

At about the same time, though, the drudgery of writing the market-close story—stocks up on this; stocks down on that—began to make me wonder whether chasing the inevitable day-to-day ups and downs of markets was worth anyone’s time. Some critics say markets reporters must suffer from A.D.D., because short-term fluctuations in stock indices really don’t matter much in the long run. They say it’s absurd to pin a single narrative on spot news involving countless individual decisions, many of them made by robots. Too often, coverage favors one slant if stocks are up and another if stocks are down when, in fact, nobody really knows.

And yet, the bigger the swing in the Dow, the more urgent the need to chase down an explanation, even if it’s a short-term one. Indeed, larger swings actually predict greater reader interest, which, in turn, validates the coverage.

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The public understands that something is a bit off-kilter, as we see frequently in reader comments on our daily market stories:

Investors aren’t the ones changing their minds. It’s the day traders and the HFT algos. that are changing our minds for us, we just side on the sidelines and watch the fake sentiment. Nothing has changed about Mr. Ben in the last 4 days; nothing has changed about Europe, either. However, to read Marketwatch and CNBC, you’d think one day we predict Ben is gonna do nothing, the next day we predict he will save the world. A whole lot of trader manipulation and media amplification.

Not long into this gig, I learned the dangers of putting too much weight into any one event or explanation.

Five days before Federal Reserve chief Ben Bernanke was set to speak in Jackson Hole, on Friday, August 26, news outlets were pegging a surge in stocks to hopes that Bernanke would hint at further quantitative easing. On the Tuesday and Wednesday before the speech, the Dow added roughly 450 points. By Thursday, stocks were dropping. The consensus became that whatever “optimism” on Bernanke that had led stocks higher was fading. All this happened without a single word from the Fed chairman.

In response to four stories that appeared on the Tuesday before Bernanke’s speech in Reuters, The Wall Street Journal, The New York Times, and PBS NewsHour, investment strategist Jeff Miller wrote a blog post headlined “Interpreting the Market: Good Luck!”

Among the headlines that he said were “all wrong” that day were “Wall Street Jumps on Fed optimism,” and “Stocks Jump on Hopes for Fed Action.”

“The idea that all of a sudden people got the idea that Bernanke was going to do something, to me, is just kind of crazy,” Miller said later when I reached him on the phone. “There is too much meaning inferred from what is normal volatility or variation.”

A better explanation for the Tuesday rally was that the huge stock sell-off in early August had set up markets for a relief bounce. After seeing a bit of upside, some investors got antsy enough to want to jump back into equities. And when stocks ran up so sharply at midweek, some decided to take profits, as the saying goes, and get out.

In the end, bouncing around is just what markets do, isn’t it? That’s why I don’t blame sources when they decline to talk about intraday movements. I’ve encountered a handful of long-term portfolio managers who scoff at the very idea of reporting on daily market movements. The strategists who do talk do the best they can. Sometimes, if no macro explanation presents itself, they resort to talking about individual stocks or sectors.

“There could be multiple opinions about what the market should be doing,” says David Lefkowitz, market strategist at UBS. “The one that becomes the most popular are the ones that are working, and people latch on to those opinions explaining what’s happening, even if they oversimplify the picture.”

As Lefkowitz says: “An explanation makes everyone feel a little more secure.”

The temptation to slap a narrative on everything isn’t only something journalists do; even big-time investors can make the same mistake. I’ve had portfolio managers on the phone adjust their explanations on the fly as stocks change directions. Suddenly the “good news” lifting stocks isn’t so good any more or the “bad news” just got worse. Or something. No doubt our interviewees are better connected to the money than we are. But still.

The coverage preceding Bernanke’s speech underscores how easy it is for journalists to zero in on a correlation and run with it as causation. But, because movements in the stock market result from trillions of calculations about future prospects for the economy and for individual companies, most of these unknowable, it’s impossible to come up with a solid proof of what the collective psychology is at any one moment. Do ‘bots even have psychology?

All this might lead you to conclude that the market moves randomly most of the time, and we shouldn’t even try to find out why. But wait. Throwing our hands up is just as extreme an overreaction as pinning a day’s move on a single event. For one thing, it’s a sure way to lose readers, who are grasping for an explanation. For another thing, there are ways to do it reasonably without falling into the over-simplification trap.

Let’s face it, the unwavering attention from readers suggests that the daily markets story will, and should, remain a staple of financial news. If that’s the case, we should make our explanations as reasonable as possible. How? Market reporters and editors should simply try to present the reader with realistic explanations—because day-to-do events do have an impact on short-term moves—including, when appropriate, acknowledgment of uncertainty behind the market’s gyrations.

In response to one of my pre-market stories headlined “Futures Gain on Obama Jobs Plan,” for example, a reader had commented:

Can you prove that Obama’s $300b plan which has no chance of passage is the reason for futures being up today. There have been many days where futures rebounded after 300+ points of losses. Pretty sloppy reporting.

In retrospect, I wish the headline had been that futures were gaining “ahead” of the President’s jobs speech. Then I would have been laying out a possible reason for the gains in futures but not definitively pinning down on one. It’s a word game, sure, but words matter, and a small tweak would have resulted in a more accurate headline.

Markets stories should give reasonable weight to what the near- and long-term trends for stocks are. Adding color about how certain asset classes fared differently and noting forward-looking news like upcoming earnings announcements or economic events can round out a story. Stocks and gold might move down in tandem one day, in which case we can’t cite the same news headlines to explain why investors are both risk adverse and safety shy at the same time. If a strong dollar or yen is behind the movement in gold, then the markets reporter had better capture that relationship.

The markets story should convey that stock movements are complex. The Street’s lede on the Tuesday before Bernanke’s Jackson Hole appearance back in August cited multiple reasons behind the stock surge.

Stocks staged a mighty rally Tuesday, even shrugging off the uncertainty presented by a rare East Coast earthquake, as all three major U.S. equity indices gained at least 3%.

Early buying was attributed to positive global economic data, which overshadowed another weak read on the U.S. housing market, as well as growing investor optimism about a high-profile speech due from Fed Chairman Ben Bernanke at the end of the week. The gains accelerated ahead of the close after the S&P 500 broke past 1150, a key technical threshold.

We’re not doing heavy-duty investigative work in the markets report, but we’re still obliged to give our readers the best snapshot of reality that we can. The challenge is how to balance this obligation with the pressures of writing under deadline. When the market decides to surprise us just minutes before the closing bell, we still have to handover our copy within reasonable time. The question is, what’s it going to say.?

The easy way out is to pin credit or blame movements on one or two events of the day. But getting closer to the truth, as with most stories, requires giving readers more context and multiple angles, and through that, an implicit acknowledgment of a narrative’s complexity.

Chao Deng is a markets reporter for